Forecast sees hard year, fewer chip makers

SAN JOSE, Calif. – Under clouds of uncertainty about the global economy and mobile systems transitions, semiconductor sales will "muddle along" to growth of no more than five percent this year. But next year it will nudge toward double-digit growth, and long term a consolidating industry should be able to sustain modest expansions, according to the fall forecast from IC Insights.

"Our view is the [semiconductor] market this year is flat to up five percent," said Bill McClean, president of IC Insights (Scottsdale, Ariz.) in an annual Silicon Valley talk here.

The company halved its 10 percent chip forecast earlier this year when the Japan earthquake hit and the U.S. economy turned soft. "If we get 3.8 percent global GDP growth this year, we'll get a little better than average system sales of seven percent growth," nudging up the chip forecast slightly, McClean said.

Despite the short term clouds, "the future is very bright for this industry--I see no long term change in the traditional average of 8-9 percent growth," McClean said.

Projections for the U.S. economy slumped from four to 1.7 percent GDP growth earlier this year, driving down chip forecasts. The U.S. is expected to recover to 2.85 percent GDP growth in 2012, but it may only reach 2.2 percent if Congress fails to pass payroll tax breaks and extend unemployment benefits, he said.

The global GDP should return to a more typical growth rate of about 3.6 percent next year, buoyed by recoveries in Japan and the U.S. and continued strong growth in emerging countries such as China. China became the world's largest buyer of PCs this year and was already the leading purchaser of cars (thanks to a government stimulus program) and cellphones, consuming 300 million handsets in 2010, McClean said.

Rising oil prices present the biggest risk to GDP growth. They soared 17 percent on a compound basis from 2002-2011 compared to just three percent from 1988-2002.

"I am surprised the world economy is doing as well as it is," said McClean. "We don’t see global GDP hitting four percent over the next five years because we are caught on oil prices," he added.

Re-election years can bring upside surprises. He speculated President Obama could by administrative action approve a broad four percent home re-financing program next year to give the economy a quick jolt forward.